Asset Prices and Business Cycles Under Market Incompleteness

2005 ◽  
Author(s):  
Eva Carceles-Poveda
Keyword(s):  
Business Cycles ◽  
Asset Prices ◽  
Market Incompleteness

scholarly journals Investment-Specific Shocks, Business Cycles and Asset Prices

2015 ◽  
Author(s):  
Giuliano Curatola ◽  
Michael Donadelli ◽  
Patrick Grrning ◽  
Christoph Meinerding
Keyword(s):  
Business Cycles ◽  
Asset Prices

Bankruptcy, Finance Constraints, and the Value of the Firm

2011 ◽  
Vol 3 (2) ◽  
pp. 1-37 ◽  
Author(s):  
Douglas Gale ◽  
Piero Gottardi
Keyword(s):  
Financial Crises ◽  
Asset Prices ◽  
Investment Decisions ◽  
Alternative Interventions ◽  
Fire Sales ◽  
Market Incompleteness ◽  
Competitive Model ◽  
Finance Constraints ◽  
States Of Nature

We study a competitive model in which market incompleteness implies that debt-financed firms may default in some states of nature, and default may lead to the sale of the firms' assets at fire sale prices when a finance constraint is binding. The anticipation of such “losses” alone may distort firms' investment decisions. We characterize the conditions under which fire sales occur in equilibrium, and their consequences on firms' investment decisions. We also show that endogenous financial crises may arise in this environment, with asset prices collapsing as a result of pure self-fulfilling beliefs. Finally, we examine alternative interventions to restore the efficiency of equilibria. (JEL D83, G31, G32, G33)

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